Philippine annual headline inflation slows in November, BSP likely to commence rate hikes in Q1 2018

Philippine consumer price inflation slowed in the month of November, consistent with market expectations. Headline inflation decelerated to 3.3 percent year-on-year, halting four consecutive months of rises. However, despite the slowdown in the annual rate, consumer prices rose on a sequential basis. Inflation accelerated to 0.5 percent sequentially from October’s print of 0.3 percent. As expected, utility and transport prices were up, reflecting the rise in global fuel prices. Core inflation rose marginally, underpinning the view of domestic demand strength, noted ANZ in a research report.

Demand pull inflationary pressures continue to be at a higher level. According to ANZ, average inflation is expected to stay in the upper half of the central bank’s 2 percent to 4 percent target range through 2018. The passage of the tax reform, which is likely to increase transport and energy costs and selected food prices, might possibly contribute positively to the upside risks in headline inflation prints.

Robust domestic demand is entrenched. Credit growth continues to increase, almost reaching the highs of 2011. With the government ramping up on infrastructure spending, fundamental imbalances are intensifying.

“We believe that tighter monetary policy is necessary. We still expect interest rate hikes to commence in Q1”, added ANZ.

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